Wells Fargo Earnings Dip on Scandal-Related Charges

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Wells Fargo & Co. (NYSE: WFC) reported fiscal 2017 third-quarter results before markets opened Friday morning. The banking giant reported diluted earnings per share (EPS) of $0.84 on revenue of $21.9 billion. In the same period a year ago, Wells Fargo reported EPS of $1.03 on revenue of $22.3 billion. Net income dropped from $5.64 billion a year ago to $4.6 billion in the quarter. Third-quarter results compare to the consensus estimates for EPS of $1.03 on revenue of $22.39 billion.

Net interest income in the quarter increased by 4% year over year to $12.5 billion. The bank noted that lower investment yields driven by accelerated prepayments and lower average loan balances were offset by an extra day and higher pricing than last year.

Non-interest income rose 9% year over year to $9.5 billion and reflected lower mortgage banking and other income, partially offset by higher market sensitive revenue.

Wells Fargo’s tier 1 common equity ratio (fully phased-in) of Basel III is 11.8%.

Non-interest expenses rose sequentially from $13.5 billion to $14.4 billion and included a charge of $1 billion ($0.20 per share) for litigation accrual related to the bank’s mortgage-related regulatory investigations.

Net loan charge-offs rose from $655 million in the second quarter of 2017 to $777 million, or an annualized rate of 0.3%. Commercial charge-offs totaled 0.0.9% (up sequentially from 0.6%) and consumer charge-offs totaled 0.53% (up sequentially from 0.51%).

The bank’s CEO, Tim Sloan, said:

We saw total average deposit growth; loan growth in our residential mortgage, credit card and subscription finance portfolios; as well as higher assets under management in Wealth and Investment Management. We also continued to invest in customer-focused innovation and have begun the rollout of our online mortgage application and “Intuitive Investor,” our online platform for digital investing and professional advice.

CFO John Shrewsberry added:

We continued to see good credit performance and our liquidity and capital remained exceptionally strong. During the quarter … we returned $4.0 billion to shareholders through common stock dividends and net share repurchases, up from $3.4 billion in the second quarter. We remain committed to our target of $2 billion of expense reductions by the end of 2018 which will be reinvested in the business and an additional $2 billion by the end of 2019 intended to go to the bottom line.

The bank did not offer guidance in its press release, but consensus estimates call for fourth-quarter EPS of $1.04 on revenues of $22.52 billion. The EPS estimate for the 2017 fiscal year is $4.14 and revenues are forecast at $89.48 billion.

Shares traded down about 2.6% in Friday’s premarket at $53.75. The current 52-week range is $44.32 to $59.99. The 12-month consensus price target was $57.95 before results were announced.